The Foreign Corrupt Practices Act covers a nearly boundless range of business conduct by issuers and their agents in an ever more global world. Yet the contrast in sentences handed down in two recent FCPA cases illustrates the limits of this law. The concept of “minimum contacts” acts as a restraint on prosecution, even if only for foreign nationals.
A $100 million bribery scheme and cover-up involving Siemens AG has resulted in very different outcomes for two company officials who faced charges under the Foreign Corrupt Practices Act (“FCPA”). Former Siemens AG Managing Board Member Uriel Sharef must pay a $275,000 civil penalty for his conduct, the second largest penalty ever assessed in a case involving the FCPA. The other, Siemens Argentina CEO Herbert Steffen, had all claims against him dismissed.
At the crux of these contrasting rulings – both handed down this year by United States District Judge Shira A. Scheindlin – was prosecutors’ ability to establish whether the Siemens officials, who are both foreign nationals, had “minimum contact” with the United States government in their dealings. These divergent results provide an opportunity to assess the role that “minimum contacts” play in a determination of FCPA exposure for individuals subject to scrutiny by the Securities and Exchange Commission (“SEC”) and Department of Justice.
Siemens was subject to such scrutiny when, after bribing Argentine officials in a decades-long scheme to retain a government contract to produce national identity cards, the company made false certifications in its SEC filings to cover up its actions. These certifications were required by the Sarbanes-Oxley Act.
In determining whether it could assert jurisdiction in each Siemens official’s case, the District Court had to find “certain minimum contacts with [the United States] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” U.S. Sec. & Exch. Comm’n v. Sharef, 11 Civ. 9073, at 11 (S.D.N.Y. Feb. 19, 2013). Minimum contacts can be established when:
(1) the defendant has “followed a course of conduct directed at” the jurisdiction of the United States,
(2) the effects in the United States occur “as a direct and foreseeable result” of the extraterritorial conduct, and
(3) the defendant knows or has good reason to know that his conduct will result in the United States asserting jurisdiction over him.
Even if this standard is satisfied, other factors may make the exercise of jurisdiction unreasonable, including the burden on the defendant and the interests of the United States in obtaining relief.
The District Court found sufficient facts to support “minimum contacts” as to Sharef, but not as to Steffen. Sharef had recruited Steffen “to facilitate the payment of bribes” to Argentine officials. Steffen then met with the CFO of the Siemens operating group that was to pay the bribes to “pressure” him to authorize bribes, and participated in one phone call with Sharef to urge Sharef to make additional payments in response to demands from the Argentine government. But the CFO of the Siemens operating group would not pay the bribes until he spoke with several “higher ups,” above Steffen, like Sharef, and deemed Sharef’s response as his instructions to bribe. The CFO then instructed numerous subordinates to generate a series of fictitious documents to facilitate the payments and to obscure the audit trail. The District Court attributed this conduct to Sharef’s order to the CFO.
In contrast to Sharef, Steffen did not engage in the production of the fictitious documents that supported the false certifications, and Judge Scheindlin found that Steffen’s actions were “far too attenuated from the resulting harm to establish minimum contacts” with the United States. The District Court acknowledged that Steffen “urged” and “pressured” the CFO to pay the bribes, but placed substantial weight on the fact that the CFO had only agreed to proceed after receiving instructions directly from several other “higher ups,” including Sharef. The District Court viewed Steffen’s involvement as merely tangential to the subsequent cover-up via the false SEC filings and supporting fictitious documents.
Judge Scheindlin expressed concern that jurisdiction could extend to anyone allegedly involved in a bribery scheme “no matter how attenuated their connection with the falsified financial statements” if she asserted jurisdiction over Steffen. “If this court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified [securities] filings, minimum contacts would be boundless,” she said.